Supply Chain Management - Procurement

On this blog I'll write about Supply Chain Management with a focus on Procurement. Besides that you'll find links and information related to these subjects.
The aim is to display my view on some interesting topics related to Strategic Supply Chain Management and Procurement and get other people thinking about it.

zondag 19 januari 2014

Existing
for more than 20 years for specific industries and prototyping, 3D printing
(additive manufacturing) is crawling out the shadow. It’s getting more and more attention and
according to some people a revolution is started. Whether a revolution or maybe
an evolution, it sure is more than just a trend. The past two decennia, the
techniques of 3D printing have proven their value, and the growing attention of
media and business (in very different industries) will function as an
accelerator for the 3D printing market. The rising stocks of 3D printing
manufacturers show this clearly.

It is
difficult to point out what exactly can be expected from 3D printing, that’s
why the title of this blog is ‘A’ future of 3D printing instead of ‘The’ future
of 3D printing. Nevertheless, I like to share some of my thoughts (and
questions) what effect this technology might
have on the near future if the present high rate of developments in the 3D
market is continuing. And because it’s a Saturday night, I’ll stick to thoughts
and will save the analyses and calculation maybe for other posts…

3D
printing consumer market
As the 3D printers are getting more advanced the products which are
manufactured are getting also more and more advanced and are used in several
high-tech end products like airplanes and cars. But also in other areas like the
dentistry and food markets 3D printed products are used.
Besides the attention of the industry, the attention of 3D printing for the consumer
market is increasing, as prices of printers are starting to decrease.
Nevertheless, there is still some work to do before this market potential can
be captured as todays’ consumers will only be satisfied when products or
services are user-friendly (easy in use, ready for use, plug and play)and not too expensive.
Some of these hurdles still have to be taken are in the areas of costs/price, materials
(availability and types of-) and quality of the ‘output’ of the ‘low-budget’
printers. Besides that, manufacturers must be ready to sell products by
‘sending’ the printorder and software will need to be developed such that
consumers can design (program) their own products in an easy way (Or better: ‘printing
the picture I just made with my tablet or smartphone’).

Currently
we see that companies are indeed taking steps to develop and enter the consumer
market. For example we see do-it-yourself kits ‘ of 3D-printers’ far below the
€1000, the type of materials which can be used for 3D printing are increasing
(metals, plastics, even food), 3D Systems (3D printer manufacturer) has
announced a collaboration with Intel which is developing 3D scanners for
tablets, and so on.

Besides the
hurdles mentioned above which have to be taken in order to reach the crossover
point where consumers are widely accepting the 3D printing technology, it is
also important for organizations to look for collaboration. Collaboration
between larger brands (who are preparedto sell their product via this new ‘sales -channel’), 3D manufacturing
companies and software-suppliers is a necessity for bringing 3D printing to a
wider public. Companies which are willing to capture a significant market share
in the 3D printer market for consumers will need to start now with making
investments, to enjoy benefits when that
crossover point is reached.

3D printing in practice

How this
might look like in practice? I don’t know, but as I see it, there are multiple
(no, even more than multiple) scenario’s how and where 3D printing can be used.
Will 3D printing at home be the next normal? Or will there be a sort of ‘printshops’
or ‘print-houses’ on each corner of the street where you can collect your 3D
printed items which you just ordered on Amazon or programmed at home with your
tablet?

Logistics
3D printing will have a significant impact on logistics. Without getting into
detail, think about inventory
management. Some products aren’tnecessary to have in inventory if you have 3D printing technologies in
house (though you still have to have the raw material in stock, but with the
same material you may be able to make multiple type of products, so in the end
you have less inventory). Furthermore the decoupling point will be more
flexible, it’s a complete new sales channel for companies. Production costs
might decrease as well as transportation costs. And so on.

Challenges
But as all innovations do, 3D printing will bring new challenges. Think about
plagiarism of ‘print orders’ of products? And how often are you allowed to
print your newly bought product via de 3D printing channel? Can it be
copied? Can the printer be
hacked?

Another
challenge will be responsibility? Who do you account for malfunctions during
the printing process? Is it the owner of the printer? The manufacturer? Or the ‘Amazon’ who is sending you
the print order?

What about Ethics?
Are there any guidelines for this? Are you allowed to print guns? Will the
current regulations of the government do, or are new regulations necessary?

These are
just some of the many questions which will rise when getting closer to the
aforementioned crossover point.

New businesses
In order to cope with these challenges, new (types of) organization will come
into being to fill the gaps created by the new 3D printing market. Thinks about
3D printer services who provide maintenance to 3D printers, brokers who will
take responsibility for the quality of printing jobs send from ‘Amazon’ to the
consumer.

If you took
the time to read the article, you know it was just to share some of my thoughts
on 3D printing which was certainly not exhaustive. Nevertheless, I hope you
liked it and made you think about 3D printing for the consumer market.

donderdag 18 april 2013

I’ve just
read two interesting blogpost of Joe Payne about predictive analytics in
procurement.

Although I
definitely see the value of 'predictive
analytics', I think the definition itself for the content of his blogposts is
to narrow. It’s just scenario 3 in which there is something about 'predictive
analytics': ‘provides a forecast out for
the year based on’.

I think 'predictive
analytics' is (a very important) part of a greater whole. At the same time I
must admit I haven’t got the right label for that ‘whole’, but it could be something
like: ‘Real time insights and Predictive
analytics in Procurement’, ‘Procurement
Excellence 2.0’, ‘Managing the now
and the future of spend’, ‘Insights
based decision making for now and the future’, and then probably a somewhat
catchier name…

But as you
see, the key elements are mainly now,
future, decision making, realtime insights and predictive. What I want to make clear with those non-catchy names
is that a new version of procurement is around in which Operational decision
making in procurement is based on realtime information and strategic decision
making is based on predictive analytics.

I named it
a ‘new version’, but ‘upgrade’ is perhaps a better word, because most traditional
procurement parts are still necessary, or better: they are the building blocks
for the upgrade (sourcing strategy, purchase to pay, spend analysis, category tree,
master data management).

The change
for the procurement department will mainly be in their way of working: how to
interpret the information and how to use it to make better decisions. Cooperation
with IT experts, content expert (to define which information is useful) and
analytic experts to assure the right input/output, software selection and
maintenance, master data management is a prerequisite in order to succeed.

It is
something new (at least for procurement) and it will cost some time and money
to implement it, but it will become the new frontier in procurement. And as Joe Payne mentions in his blogpost:’ The investment will be substantial, but so
is the payback.’

donderdag 10 januari 2013

In the part 1 of this series, I highlighted the importance of
the IT-infrastructure. In the second part I zoomed in on types of information
that can be exchanged and why it is beneficial to share those types of
information. This post I will discuss the process of information sharing, clarifying why information may be shared or not.The information exchange process is a complex process which is
influenced by many interacting determinants. Information will only be disclosed
if it is likely to serve certainbenefits.
If it is more certain that disclosing a piece of information would lead to
benefits, organizations are more eager to share that information. However,
often it is difficult to know upfront whether benefits will increase, there is
always a level of uncertainty. Closely related to the expected benefits
by sharing certain information, is thedivision of the benefits. It is
important to have a fair division of the costs and revenues upfront in order to
maintain or improve the information exchange.

Trust is another important determinant of the information
exchange process. If trust exists between (the people of) two parties, one is
more willing to disclose information because it is expected the other party
will handle the information in a proper way.

Then there are control mechanisms (like NDA’s and penalties for
misuse). The more control mechanisms are in place, the more information is
expected to be exchanged. The level of control is highly dependent on the level
of secrecy and uniqueness of the disclosed information. Nevertheless, for some
types of information it is difficult to establish reliable control mechanisms.
It may also be the case that increasing control mechanisms is seen as an act of
distrust. A optimum balance should be established between trust and control in
order to increase information exchange.

Another determinant of the information exchange process is dependency.
The lessdependent a party is on its buyer (or supplier), the more power it has
in the relationship. An organization can exert its power to force the other
party to disclose information. Although question marks can be placed at the
reliability of the information, because the information can be incomplete or
distorted by the weaker party in order to avoid an even higher level of
dependency. Other way around, dependency in a buyer-supplier relationship is a
mutual phenomenon. An equal and high level of mutual dependency increases the
level of information exchange because both are equally dependent on each other
and have no interest in a damaged relationship caused by the misuse of
information.

With respect to information disclosure, the level of vulnerability
is determined by the impact and the chance of misusing the disclosed
information by the receiving party. The impact is determined by the type
and importance of information. The closer the information to the core of the
organization, the higher the impact and by that the vulnerability of the
disclosing organization, because if this information is misused, the
competitive advantage may be at stake. The impact cannot be seen apart from the
chance that information is misused, or in other words the chance of
opportunistic behavior. Opportunism is often referred to as the opposite of
trust. If trust is present in the relationship, the chance of misuse of
disclosed information (opportunism) is expected to be low,resulting in
a lower level of vulnerability. The higher the impact of misusing disclosed
information and the higher the chance of disclosing that information
(opportunism), the higher the level of vulnerability will be. Generally
speaking, less information is exchanged if a higher level of vulnerability is
present.

Exchanging information is a process of giving and receiving, and not
just giving or receiving. Therefore reciprocity, which can be explained
as the process in which both parties in a relationship send and receive
information, is important in the information exchange process. If just one
party discloses information, the information flow will soon stop, because the
disclosing party is not getting anything in return; the relationship will be
damaged.

Furthermore, the flow of information between organizations with the same
culture will be more fluent than if they have different cultural
backgrounds. Though, if a buyer and supplier have different cultures, it does
not imply that an organization never gets the information asked for, but they
may encounter some communicational barriers.

InteractionWhen trying to understand the information exchange with a specific
supplier, it is important not to focus exclusively on a single determinant,
because all other determinants will influence each other and the information
exchange process at the same time. The different determinants and the
interaction among them, make the vertical exchange of information a complex
process. This may clarify the gap between acknowledging the benefits of
exchanging information on the one hand and not exchanging the information on
the other hand.

In the next post I'll will discuss some tools which can be useful for getting grip on the information flow of your relationship with buyers and suppliers.

dinsdag 8 januari 2013

In the
previous post of this series, I highlighted the importance of the IT-infrastructure.
In this post, the focus is on the types of information that can be exchanged
and why it is beneficial to share these types of information.

Although
buyers and suppliers may have contradicting goals (especially seen from a
conservative perspective), they have at least one goal in common: making profit[1]. Dependent
on contextual characteristics, buyers and suppliers will (try) to interact in a
certain way with each other (varying from transactional exchange to close
partnerships) to make as much profit as possible. In a pure transactional
exchange, both parties will only care about their own profit. In close
partnerships on the contrary, organizations try to create as much profit as
possible for the buyer-supplier relationship (inter-firm profitability) and divide the additional profit as a
result of the alliance in a fair way. The increase in inter-firm profitability
can be realized by increasing revenue and/or decreasing costs at the buyer
and/or supplier their processes. The exchange of information between the
two parties is an important prerequisite in order to increase the inter-firm
profitability. Examples of this may be the possibility to align and coordinate
processes across organizational boundariesor joint development of new products as a result of sharing information.

Types of
information

Dependent
on the type of relationship and contextual characteristics (in its broadest
sense) the exchange of certain types of information, varying from operational
data to strategic knowledge, may result in an increase in inter-firm
profitability.The table below
reflects a selection of information types which may affect the inter-firm
profitability. The table provides also information about how the exchange of it
may affect the inter-firm profitability and the direction of the flow of the
information.

Note: the
table is meant as an impression of the different types of information which can
be used for increasing benefits, the goal of the table is not to be exhaustive.

While
sharing several types of information will obviously contribute to an increase
in profit, both parties are often reluctant to disclose information. Although
the level of information exchange will definitely be a result of the type of
relationship (transactional – cooperative) it surely is not the single factor
clarifying the lower level of information exchange than would be expected based
on the prospects of increasing profits
when increase sharing.

Which
reasons then are in place why information is not disclosed? In order to find
those reasons, we have to understand the process of information exchange by
revealing underlying determinants. This will be the subject in the next post of
this series.

woensdag 2 januari 2013

Due to a
combination of recent technological developments (such as smartphones/tablets,
wireless internet -WIFI, 4G-, social media, cloud computing and less expensive
storage capacity) access to information has increased and sharing of
information has been simplified. This has lead to an enormous increase in
worldwide information flows over the past few years – a trend that is likely to
continue for the foreseeable future.

However, without
a well-organized informational infrastructure (informational processes,
policies concerning information sharing, information systems and governance
structure), the ever increasing flow of information will either result in
organizations suffering from leakage of valuable information or an overload of
information. On the other hand, organizations that proactively organize their informational
infrastructure in alignment with their corporate governance and strategy may be
able to capture the many benefits of the increased access to and sharing of
information.

For many
organizations, the technological developments mentioned above have opened doors
to new levels of internal and external collaboration through the greater
exchange of information. An example of this is the so-called Control Tower. Control Towers are
cross-divisional organizations with system integrated “information hubs” that
provide increased visibility into the supply chain. In such a cross-divisional organization,
individuals continuously monitor and distribute filtered and integrated real-time
information, which is collected internally from several systems within their own
organizations and externally from organizations throughout the supply chain. This
information enables individuals to detect and act on risks or opportunities
more quickly. In addition to the flow of information, many organizations store
a lot of this (partly publicly available) information. Smart use of this ‘Big Data’
may lead to competitive advantages for organizations. Of course, to realize
these benefits, organizations will need individuals with the right analytical
skill set. A rise in the prevalence of technology enabled systems and big data
will therefore lead to a rise in the demand for individuals with the right analytical
skills to leverage these trends.

IT-infrastructure
The Control Tower is only one example of an initiative that an organization can
undertake to integrate information from multiple sources - there are many more.
However, any initiative must first overcome several technical barriers that
exist due to the fact that most organizations have their own enterprise
applications and data. The figure below depicts a simplified, high-level view of
an organization’s IT-infrastructure. In the center you can see the
orchestration of services which is responsible for integration of front-end
services and ERP systems, such as SAP and Oracle. The pillar on the left represents
security services like authentication and system security. On the right,
another pillar represents the equally important governance services. This
category includes services such as user support and supplier services.

The high
number of different software packages used within many organizations today makes
aligning these systems a complex task. This becomes even more difficult when organizations
want to integrate the systems of their supply chain partners into their own
IT-infrastructure. In general terms, there are two basic approaches to handling
the problem of integrations of multiple systems:

1)New
organizations (or departments within an organization) are created that are
specialized in interfacing. These organizations integrate several systems by
using middleware and display all relevant information for the end-user in one
portal.

2)Software
vendors provide solutions by extending their software packages. For example, a
vendor that is specialized in S2P software extends its software package with
modules such as planning and inventory management.

Over the coming
years, the first approach is likely to outgrow the second because most software
vendors are specialized in certain modules and lack the expertise to develop
other modules (especially over the short term). Additionally, many organizations
prefer the relatively easy implementation of middleware over implementing a
complete new software package throughout the whole organization. This is mostly
because the former has less impact on departments while the latter presents
many challenges. This is especially true when organization’s current software
packages are working properly and individuals are comfortable with the current
state.

Finally, a possible
third approach may develop over time: software vendors may collaborate or even
merge in order to offer a more complete solution offering. Examples of this
approach include SAP, which acquired Ariba, and IBM which acquired Emptoris. By
doing so, these vendors offer a more extensive solution set for organizations while
at the same time overcome any knowledge gaps that may exist.

Information
sharing process

IT-infrastructure
is very important but it is merely an enabler for information exchange. Assuming
that the technical solution is in place, several other hurdles may appear in
sharing information. These problems may show up when internally sharing
information, but especially appear when information sharing takes place outside
the boundaries of the organization.

Taking a
closer look at externally exchanged information, it is easy to identify two
distinct types: horizontal and vertical information sharing. Horizontal means
sharing information with other organizations that are complementing each other
(e.g., Philips and Douwe Egberts) or with competitors. Vertical sharing means
sharing with your suppliers and /or customers. Although there are many
advantages to exchanging information with buyers and suppliers, organizations
are often hesitant to exchange certain types of information.

The remainder
of this series of posts concerns the vertical information sharing process. What
types of information is exchanged between buyers and suppliers? Which goals
serve the exchange of certain types of information? Why is information
sometimes not shared even though it obviously will result in an increase in
profitability? And last but not least, what can we do to control the information
sharing process in order to maximize profit? In the second part of this series,
we will focus on the types of information that can be exchanged and how this
may lead to benefits for organizations. The third post of this series
elaborates on understanding the information exchange process itself. Here we
take a closer look at the factors that drive information sharing and try to
understand why or why not organizations choose to share information. Finally, in
the fourth and final post of this series, we’ll share some advice for
optimizing the exchange of information as well as some of the pitfalls that
organizations often face.

zondag 30 december 2012

Herewith an
announcement of a series of post concerning the information exchange between
buyers and suppliers. In this series answer are given on questions like: What types
of information are exchanged between buyers and suppliers? Which goals serve
the exchange of certain types of information? Why is information sometimes not
shared even though it obviously will result in an increase in profitability?
And last but not least, what can we do to control the information sharing
process in order to maximize profit?
Before trying to answer these questions I start with a post on the IT (infrastructure)
of organizations because it is an important enabler and accelerator for
information exchange these days and therefore cannot be neglected. It shapes
the context in which it takes place.
In the second part of this series, I will focus on the types of information
that can be exchanged and how this may lead to benefits for organizations.
The third post of this series elaborates on understanding the information
exchange process itself. Here we take a closer look at the factors that
drive information sharing and try to understand why or why not organizations
choose to share information. Finally, in the fourth and final post of this
series, I’ll share some advice for optimizing the exchange of information as
well as some of the pitfalls that organizations often face.

I’ll hope
you will like this series and I want to invite you all to comment on it. Stay
tuned as the coming week the first post will appear.

vrijdag 28 december 2012

For those of you who followed my blogposts in 2010 and 2011, the content may sound familiar only somewhat less detailed than mine. In the blogpost I found a link to another article about should cost model on which the post was based. It is a very interesting article which the authors have based on a chapter of their book about (several) cost models (Victor Sower and Christopher Sower).

Although I get several requests a month from people who have read my blogpost on should cost modeling for more information or the examples it seems that there was some radio silence last year on should cost modeling (also from my side due to a busy time at my work with other procurement and scm related topics). But it is good to hear that the should cost modeling philosophy is still there. Every now and then a blogpost or book (or chapter in a book about it) appears and for me personally, it is good to read that the greater part of my blogposts are reflected in those messages, I guess it means that my philosophy back in 2010 made some sense.

I've just ordered the book, and I'm very curious about the detailed content!

woensdag 7 maart 2012

Many organizations (plan to) transfer their traditional arranged IT towards cloud-based solutions. Procurement IT solutions are not an exception here.

There are many advantages of cloud-based solutions, ranging from financial advantages to the quality of information sharing and planning, but what exactly is meant by the cloud? What are the pro’s and con’s? How is the security arranged? What are the difference among, SaaS, PaaS and IaaS? How can I assure a solid and safe migration to the cloud? And so on...

Instead of writing a complete paper about ‘the cloud’ (because 'cloud-experts' will do a better job on this than I do) I provide some links to interesting papers which are easy accessible, may answer your questions and can provide you with some guidance for migration into the cloud.

dinsdag 6 december 2011

Why information exchange between buying organizations and suppliers is limited while both parties know it is beneficial to share information.

Although buyers and suppliers may have contradicting goals, they have at least one goal in common: Making profit.
When they (buyer and supplier) decide to cooperate they can increase their profitability. However, in order to increase the profitability and grasp the benefits of cooperation, information sharing between the buyer and supplier is a prerequisite. They need to exchange information about their activities, processes, costs and value in order to map the overall picture of their relationship to come to a higher inter-firm profitability by aligning processes and activities on each other.

While it is widely acknowledged by buying companies and suppliers that sharing information is profitable for both of them, they are very hesitant to exchange any information. Although some reasons are obvious why certain information is not shared, those reasons do not clarify the complete behavior of the buyer and the supplier with respect to information exchange at all. This made me curious, I wanted to know why information is not exchanged, while both parties know it is profitable for them. And even more important what can buyers and/or suppliers do about it to improve the information exchange? What buttons do they have to switch in order to exchange more information and increase the profit of the buyer and the supplier.

In order to answer these questions, I conducted a study to open up the black box of vertical information sharing. I found several determinants of the vertical information exchange process which may clarify the reluctance of buying organizations and suppliers to share information. The determinants are also the buttons to switch in order to improve the information exchange.

Determinants of the vertical information exchange process

Several determinants of the vertical information exchange process are found: profitability (division/uncertainty), dependency, reciprocity, vulnerability (opportunism, impact), control, trust and culture. Each single determinant influences the information exchange process between a buyer and supplier. Besides this, it is important to notice the potential interaction among these determinants. In figure 1 the information exchange process between a buyer and supplier including the determinants is schematically depicted.

Figure 1 Schematic presentation of the information exchange process

In the middle of figure 1, the level of information disclosure is depicted which is subject to a direct influence of the first order determinants. It is a valid assumption that the first order determinants are influenced by other first order determinants and factors which have no direct influence on the level of information disclosure. These latter factors are called the second order determinants (not specified in this study). The arrows indicate the influence of the possible interaction among all determinants (1st order, 2nd order, n-order) and the level of information disclosure. The information exchange process takes place in a specific context (e.g. industry, market situation) at a specific point in time. Based on this figure, you can make a snapshot of the information exchange process between a buyer and supplier. This snapshot can serve asbase for looking for opportunities for increasing the information exchange.

To find out more about this study, the determinants and how it affects the information sharing process, you can e-mail me for a free copy of this study.

zondag 30 oktober 2011

In this article the impact which technological innovations may have will be discussed. It is an interesting and broad subject and the two pages to describe any of this is far too less. Therefore it must be obvious that my goal is not be exhaustive, but to point out some theoretical and practical topics on innovation in warfare and business in order to make you aware of it. Maybe it will even be useful to you in your way of doing business in the future.

Innovation in technology - invention of the tankThe idea for the tank already existed years before the first world war as a substitute for manpower[1]. Nevertheless, a prototype was never made at that time due tohigh costs and the necessity was not there (there was no war). When the first world war started, the development of the tank got accelerated; the first tanks were in use at small scale. The tanks were used to realize a breakthrough in the static defense lines consisting out of trenches and barbed wire which characterize the first world war.

Value of the innovation – specifying the use of the tankNevertheless, the real great value of the tank was not captured until the second world war.It were the Germans who realized how to use the tank to capture its full value. After the first world war, they studied the use of the tanks in the first world war. The studied the advantages and the disadvantages[2] of the tank in order to create a better understanding of how a tank could be used in war.
In short: They realized that the tanks were strong and fast, and could create a breakthrough in the defense lines of the enemy. But what next? Follow up actions were not specified in world war one… The problem was, that the infantry could not keep up with the high speed of the tank. Therefore the breakthrough could not be consolidated andterrain could not be captured.Besides that , the tanks were strong, but on specific terrain they are very vulnerable if they are not accompanied with infantry (especially on the terrain of urban warfare). The solution would be to make sure the infantry could keep up with the tanks, so the Germans developed trucks and armored troop carriers which could transport the infantry to make sure the infantry could keep up with the tanks.

Change in processes – a new paradigm of warfareDue to studying the first world war which they lost, the Germans looked for other ways of warfare, which may make them better and stronger. The searched for valuable lessons from their loss while the allies relied on their status quo instead. Why should we [Allies] change or be critical to our type of warfare? We won the war! There was no intention to be critical and learn…
Their critical view made the Germans see also the value which the tank may fulfill (see the previous paragraph of Value of the innovation). The invention, and later the development of the tank (which was accelerated due to the reluctance of trench warfare and a threatening war, WWII) played a significant role in the change in warfare. The static warfare characterized by opposing trench-systems, shifted to a dynamic warfare characterized by surprise, speed and impact. Among other reasons, which are too complex to explain here and which deserve attention on their own, the innovation of the tank was one of the key-drivers of this shift in paradigm.
The technologic change also caused changes in processes. The development of the tank was probably one of the sources for a change of paradigm in warfare. It became much more dynamic, and it became known as the blitzkrieg. Roughly, the idea of the blitzkrieg was to focus on a specific point in the defense of the enemy with a combination of infantry, panzer (tanks), airpower and even parachutists (Von Clausewitz called the focus on a specific point: schwerpunkt). Speed, power (impact) and surprise were the ingredients of this new dynamic type of warfare.

Luckily the Allies pulled themselves together and won the war. It is very likely that this will be discussed in later articles.

Lessons learned which may also be valuable for business

-Most of the time technological changes, are not a success in itself. Processes ( in its broadest sense, varying from production processes to organizational & policy processes) may need to be changed to fully capture the value of a technological innovation.

-Creating a breakthrough with new inventions (products, services) is not enough, you have to have next steps organized (or at least in mind). Capturing market share is good, but make sure you have resources and plans how to consolidate your market share.

-What is the usefulness of an innovation? Although a new product is fantastic, if there is no market for it, be critical on the resources you spend on them. Spending resources on the development of tanks while you are in a naval warfare may not be the right way to utilize your resources at that moment.

-Especially nowadays, it is dangerous to rely on your status quo. You have to be aware of changes and innovation in you direct and indirect surroundings (market). Your necessity for innovation may not (seem) to be high, but for other organizations it may be and once they have changed, they may have set a new standard which outcompetes yours. Your status quo has been vanished. In this complex and ever changing world, the term status quo may not be applicable anymore and may be a fairytale or utopia.
Anyway, the message is that it is dangerous to sit back and do nothing. Scan your market and (potential) competitors, even if you think they are not capable of doing anything (be aware of underdogs).

-War makes people inventive, because the necessity for change and innovation is high. This causes a lot of new inventions (for example the tank, jet-fighter, just to name a few during the world wars) which make your standard useless.
This may also be applicable to businesses. Highly competitive markets make players on that market creative.

-Every organization has limited resources. Think carefully where you use them for. Sometimes it may be better to focus your resources on a specific area (Schwerpunkt) instead of trying to compete with all your (potential) competitors on all fronts, there are just not enough resources to this. In the second world war, the Germans had to fight on multiple fronts against multiple enemies, they (luckily for us) just didn’t have enough resources to act on both theaters.
Translating Schwerpunkt to innovation in business, it is important to focus on a (or a few) specific innovation(s), because innovating is very expensive (but necessary, there is no status quo). But make the choice for a certain innovation carefully, based on a plan which includes the next steps to capture full value of your innovation and consolidate these. The plan should also include risk analysis (what if it doesn’t work out the way we thought it should). Draw up multiple scenario’s and make a choice based on theory and experience.
Although focusing your resources on a specific point, bear in mind that this may also be very dangerous, spread your risks. And make sure failure is compromised by other focus areas. Sometimes it may be better to have a few Schwerpunkts (focus areas).

[1]Even Leonardo da Vinci made drawings of a ‘tank’. The idea was to use the tank to create breakthroughs. It was not a fully substitute for manpower.

donderdag 20 oktober 2011

Several authors discuss the usefulness of strategy & tactics as it is applied in war, for using it in business. They talk about the similarities between the battlefield and business. To my opinion there are more differences than similarities between a real battlefield and business. Nevertheless, much can be learned from the approaches to strategy used in war.

Especially nowadays the informative value of insights about strategic decision making in war for managers can be very high, because most markets are continuously and rapidly changing. Decisions have to be taken on short terms with limited information while the impact of the decisions are high and critical. Waiting for actions of competitors is not an option, you will lose the initiative and will be behind on your competitors. Losing initiative will in some markets lead to losing a battle, or even worse: lose the war.

The highly competitive and rapidly changing environment looks to a certain extent like situations which we see in war. War strategists (officers) have to make decision under great time-pressure with limited information (of which the reliability can be questioned), while the impact is high.

Let there be no misunderstanding; the impact of decisions in war are much higher as these are in business. No doubts here, as wartime decisions are decisions concerning the lives of human beings. Nevertheless, the way of thinking which officers have when making strategic decision, can be very useful for managers in business, because sometimes business can look like a battlefield. Approaching the business like a battlefield can be useful in these rapidly changing and highly competitive world.

Some examples of authors which make the parallel between strategy in war and strategy in business are:

Jan Jaap Brouwer – Schaduwen over de woestijn (Dutch book)

Robert Ogilvie – Krijgen is een kunst (Dutch book)

Sun-Tzu and Gary Gagliardi - The Art of War for the Management Warrior: Sun Tzu's Strategy for Managers

More will follow…

Much of these books are based on books/studies of classic war-strategists (which are very interesting and inspiring) like:

But there are also many examples of (battles of) more recent wars (WW I, WWII, Vietnam).

The plan is to post in the near future some theory accompanied by examples (based on books or written by myself) about strategic topics in war related to strategic supply chain management, procurement and strategy in business. This serie of articles is called: The parallel between warfare and business

woensdag 8 juni 2011

When I saw a report of Accenture (2011) I got triggered to write this text. Why? Well Accenture says the right thing when they are stating that Total Cost of Ownership (TCO) models are well accepted these days. It continues to argue that these days, procurement is more and more focusing on Total Value of Ownership (TVO), nothing wrong with that, I couldn’t agree more!
What then, triggered me to write this post? Well not just Accenture, but many more organizations, experts, books, etcetera argue about the present focus on TVO, and many of them (not all), as if TVO is something new which they write or talk about for the first time. But it’s not something which just has appeared today, it’s an incremental trend (don’t take trend to literally) which has started years earlier, especially in countries like China and Japan.

Even in scientific articles, the Total Value of Ownership has been described before.Morssinkhof, Wouters & Warlop wrote in 2005 already about the Total Value of Ownership. They argue that The TVO concept recognizes that the value of a higher priced offering may come from revenue improvements and not only, or not at all, come from total cost savings. They continue to argue that a firm may be able to offer a better end-product to its (end) customers (at the end of the chain) when working together with a particular supplier (and with that increase its revenues).

When going further back in time we see that, in 1989, Michael Porter also wrote about a concept which is quite similar, or has at least some overlapping parts (maybe at a somewhat a higher theoretical level. Indeed… Value Chain Analysis (VCA). Value Chain Analysis as proposed by Porter (1989) captures both the TCO and the TVO perspectives by focusing on costs and differentiation (value) at the same time. By having this combined focus, VCA strives for a competitive advantage which is expected to result in an increase in profitability.

In the spring of 2010, I started writing my Master Thesis. I was writing about information exchange between buyers and suppliers, because I experienced the difficulties in sharing information between buyers and suppliers (both parties were hesitant to disclose information) while both parties realized that sharing information (in many cases) is profitable. I used several theoretical frameworks, but besides thatI also had to describe ‘profitability’ with respect to buyer-supplier relationships. The idea of TVO attracted my attention, but at the same time I realized that cost (TCO) should be taken into account as these two (TVO and TCO) are inextricably linked with each other (see my thesis how cost (TCO) and revenue (TVO) interact with each other). In order to clarify profitability within a buyer supplier relationship, I combined the two perspectives and made one new perspective of it: Total Inter-firm Profitability perspective. The TIP-perspective looks at the total cost incurred and the total value created by a buyer and supplier for a specific product/service-transaction in that buyer-supplier relationship. It refers to the total profitability of a (part of the) supply chain instead of the profitability of one focal organisation.

To be clear, this post is not about what perspective is better, more useful, etcetera, because that is dependent on many other things (maybe something to write about later), but the goal was to show you that TVO is not as new as some people say it is.

Conclusion:Yes: Nowadays, TVO is very relevant in procurement (and probably will be coming years? Decennia?)
No: TVO is nothing new

Greater pricing transparency: eSourcing and procurement’s intrepid scrutiny into still-cloaked categories are bringing increasing price transparency. Global trading networks and online communities will take this up a notch, further decreasing the importance of price negotiations. “The Cloud,” predicts Roy Anderson, former CPO of Metlife, “will force price transparency. Savings will be tied to things like discounts and rebates for reaching certain volumes or paying early.”

Although he certainly has a good point here, I have some remarks:

1) this greater pricing transparency is highly dependent on good eProcurement software which is professionally implemented and used in a proper way by the organization. Furthermore this eProcurement software depends on the informaiton input, see point 2

2) Although the internet is providing more and more access to a lot of information (also on price information), it is creating its own pitfall: an overload of information (and what about the reliability of the information?). With this, a new market is created for organizations which deliver the service to deal with the complexity of this information overload. This market is growing with on the one hand the more general search engines which can be used to organize to a certain extent this information (although it's more gathering than organizing it), on the other hand there exist more specialized organizations/communities which focus on specific markets and industries. Nevertheless, I think this 'new' market is still growing, and will be growing along with the increase of the information overload.
Of course it is not a completely new market because we all know google and similar search engines. Furthermore there are several (more specialized) marketing associations who act in this new market. Anyway due to the growing information overload the role of 'gatekeeper' for information will become increasingly important in the future. It may determine your competitive advantage as organizations and managers act based on the information. Therefore an important question for organizations with respect to the future will be: in- or outsource 'Intel 2.0'?

Logically, this question adresses more than just procurement, and is a strategic question (of importance).

3) I think that, dependent on the market situation, the subject of negotiation remains to take a solid place in the S2C process (especially in conservative slow moving industries) when contracting new suppliers

Nevertheless, I suggest to read the article of Steve Hall as it is very interesting. Furthermore he also wrote a part II.

The concept 'value' continues to take a central position in procurement. With respect to the position of Procurement I consider this as a positive trend and it contributes to the fact that in many organizations procurement is shifting from a support to a strategic function. There is a lot to gain for procurement with respect to value, nevertheless, 'value' is linked to 'costs'; it are two sides of the same coin. Therefore an article is expected concerning a more holistic view of procurement in which costs and value are not seen as two separate concepts, but two intertwined concepts.

Some months ago, I posted an article about should cost modeling based on industry averages. There are multiple ways to extraxt industry data. A lot of them are to a certain extent available on the internet, some are free, some need registration and other need a paid membership.

His emphasize on the power balance and the market situation is vert important! Although a very interesting piece of thought leadership, the aim is solely focused on adversarial relationships with suppliers, meanwhile fully ignoring the cooperative way in should cost modelling.

dinsdag 18 januari 2011

Some days ago, I responded to a post on a blog﻿, which was actually a respons on another post on a different weblog, which, on its turn, was based upon an interview about shoud cost modeling. Still following me?

Well, in this post you'll find this interesting interview about should cost modelling. it is aninterview with Tim Reis (Sourcing Manager).

maandag 17 januari 2011

Although I only discussed the should cost model method based on industrial averages, I thought it might be interesting to write a piece about what one can do when you have calculated the should cost price of a product.

So, once you have the should cost price, what next? How are you going to use the should cost price? What is the best method to use a should cost price?

donderdag 13 januari 2011

On this blog, I will mainly write about should cost modeling, the concept is now introduced and I gave until now just one method how to perform a should cost model (by using industry averages). Other ways (including examples) will follow soon, but it is also important to know what you can do with a should cost price. Therefore my next post will be about ‘how to use the outcome of a should cost model’.

As procurement is still often seen as a supporting function it is mainly only involved after a product is already developed which leaves the procurement with a limited supplier base in which they only can negotiate. The value that procurement may deliver is then fully neglected by the business. Involving procurement earlier in the process, or even in the development phase of the product, unties procurement and will give procurement the opportunity to add value. This is also called innovation driven procurement. On this blog: you will find more about this new interesting concept.